Feds: Anti-Tesla Dealer Laws Are Bad For Competition

Ever since Tesla Motors started going to war with car dealers over their direct-to-customer sales model, many of us have wondered this: Why can't a consumer buy a car however they want? Today, officials from the Federal Trade Commission addressed that question by sticking up for Tesla and saying bans on direct sales is "bad policy."

Over at the FTC's Competition Matters blog, three commission officials penned a post that calls out car dealers' fight against Tesla's sales model for what it is: protectionist, anti-competitive bullshit. The last word is mine, not theirs, but the post brings up a lot of great points:

Out of 15 million cars sold in the U.S. in 2013, Tesla accounted for a little over 22,000. This hardly presents a serious competitive threat to established dealers. What it could represent is a real change to the way cars are sold that might allow Tesla to expand in the future and prove attractive to other manufacturers, whether established or new ones that have yet to emerge, and consumers. Efforts to litigate, legislate, and regulate to eliminate Tesla's perceived threat have forced it to battle jurisdiction-by-jurisdiction for the simple right to sell its automobiles directly to consumers.

Yup. And on the car dealer franchise laws that evolved over time:

These protections expanded until in many states they included outright bans on the sale of new cars by anyone other than a dealer—specifically, an auto manufacturer. Instead of "protecting," these state laws became "protectionist," perpetuating one way of selling cars—the independent car dealer. Such blanket bans are an anomaly in the broader economy, where most manufacturers compete to respond to consumer needs by choosing from among direct sales to consumers, reliance on independent dealers, or some combination of the two.

On competition and why it's a good thing in a free market:

FTC staff have commented on similar efforts to bar new rivals and new business models in industries as varied as wine sales, taxis, and health care. We have consistently urged legislators and regulators to consider the potential harmful consequences this can have for competition and consumers. How manufacturers choose to supply their products and services to consumers is just as much a function of competition as what they sell—and competition ultimately provides the best protections for consumers and the best chances for new businesses to develop and succeed. Our point has not been that new methods of sale are necessarily superior to the traditional methods—just that the determination should be made through the competitive process.

And perhaps most scathingly:

Such change can sometimes be difficult for established competitors that are used to operating in a particular way, but consumers can benefit from change that also challenges longstanding competitors. Regulators should differentiate between regulations that truly protect consumers and those that protect the regulated. We hope lawmakers will recognize efforts by auto dealers and others to bar new sources of competition for what they are—expressions of a lack of confidence in the competitive process that can only make consumers worse off.

Emphasis mine all around. I'll add something I have said before: established carmakers like General Motors or Toyota or whoever may have no interest in investing in manufacturer-owned stores if they have existing dealer networks in place. Tesla is probably less of a threat to the establishment than dealers think.

It should be noted that this blog post represents the personal views of the three FTC officials who wrote it, not the agency or the federal government itself. It's also not clear whether the FTC can really influence the battle over direct sales — that's something we'll have to look into. It's also not clear whether this post indicates any kind of policy decision is in the works or not.

But in all, the post is very interesting considering where it came from, and the three authors make a lot of cogent, well-reasoned, pro-free market statements that a lot of us would consider to be just common sense.

Car dealers will argue that they're simply following the law. But I think it's important to point out they were the ones who used their considerable cash and political influence to get those laws passed in the first place, and they're doing the same to get them strengthened now that Tesla has arrived on the scene.

I have yet to hear exactly how this ban on direct sales will lead to a consumer apocalypse, but it's good to learn at least some people in the government see the value in allowing a little competition.

Read the full post over at the FTC's site.

Update: Jonathan Collegio, vice president of public affairs for the National Automobile Dealers Association, has responded to this blog post:

"For consumers buying a new car today, the fierce competition between local dealers in a given market drives down prices both in and across brands – while if a factory owned all of its stores it could set prices and buyers would lose virtually all bargaining power. And buying a car isn't like buying a pair of shoes online. Cars require licensing to operate, insurance and financing to take home, and contain hazardous materials, so states are fully within their rights to protect consumers by standardizing the way cars are sold."